Tuesday, January 21, 2014

Social Change, the Industrial Revolution, Today and Hope

At the Free Exchange Blog on the Economist Website they raise an interesting idea between the parallels of today and the industrial revolution on returns to skill and the level of social change. Think illiterate farm hands become plant workers. Only today a similar change is being driven by changes in automation.

"...accept the contention of scholars like Erik Brynjolfsson and Andrew McAfee, that exponential progress in computing power has reached a critical point, and machine capabilities are suddenly growing very rapidly. That, in turn, is likely to facilitate a wave of disruptive change around rich economies as entrepreneurs develop much more productive ways to do everything from moving goods around cities, to diagnosing and treating common diseases, to educating workers.

We reckon that a decent parallel for this transformation is the experience of industrialisation, which wholly remade the structure of rich economies. Industrialisation led to sweeping changes in labour demand and large sectoral shifts [from agriculture to manufactures - AR], and it took a very long time for the benefits of industrialisation to begin to accrue to workers in a meaningful way. Real wage growth was imperceptible for the first 60 years of the industrial era, and it was about a century before the big improvements in living standards that we associated with the modern era began to emerge.

What's very important to recognise is that those benefits did not magically arrive of their own accord. It is an article of faith among many economists that technology doesn't lead to widespread unemployment but does make society better off. Historical experience bears that out, but economists can be guilty of forgetting the caveats: it took a long time for society to adjust and an awful lot of intense political fighting to deliver the social reforms needed to make industrialisation work for most people. There were really two game-changing state interventions that saved industrial society. The first was public sanitation, which we don't much discuss in this week's newspaper. The second was the introduction of broad public education. Industrialisation created demand for relatively unskilled workers and for relatively high-skill managers and engineers. Broad-based gains were possible in large part because public education helped shift labour supply toward high-skill, better paying work."

This is an interesting view, those who have commented about it, including Tyler Cowen, don't hold much hope as they think it was easier to convert illiterate farm workers to industrial workers with a little education than it will be to get from mostly high school educated to computing wonks.

I hold more hope. The great-great-grandsons and daughters of the same illiterate farm workers are today's office workers. And they operate 3000 lbs. motor vehicles on the road with each of us everyday with surprisingly little carnage. They are capable. They might now be rich enough to demand so much leisure that they won't invest the time and effort to learn, but they are capable.

The belief that two public investments led to the health and welfare evident in the western world is an interesting idea that merits more investigation for veracity and thought about the parallel or key investments that would need to be made today.

Accurate Reality remains skeptical of most claims of government benefit, disappointed in government execution and waste, and suspect of politicians.

Accurate Reality: We may be creating societal upheaval through innovation while we are creating wealth. If we are, we will need to deal with it. If there are public investments that can help, they must be considered.